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The Congressional Budget Office projects the government to clear $175 billion in profit over the next decade on student loans.

A law touted by politicians as their way of keeping money in the pockets of the nation’s college students will instead funnel more than $700 million in additional profit into the federal government’s wallet over the next 10 years, a new analysis shows.The law, regulating interest rates for federal student loans, was passed by Congress and signed by President Barack Obama this summer. It was hailed by politicians on both sides of the aisle as a win in the campaign to combat a rising tide of student loan indebtedness.Though the law will accomplish that in the short term, it also guarantees profits for the government every year for the next decade and, starting in 2016, increases those already high profit levels, a mid-August report from the non-partisan Congressional Budget Office (CBO) shows.”As soon as the interest rates begin to go back up, this deal ends up worse for students and their parents than if they did nothing,” said Jessica Thompson, the senior policy analyst for the Institute for College Access and Success. The federal government “is absolutely making more money because of these changes.”In total, the CBO projects the government to clear $175 billion in profit over the next decade on student loans.The CBO analysis comes as millions of students and their parents are signing loan documents heading into fall.It also comes as Obama, once again, hits the road with a plan to lower college costs and decry the rising levels of debt students carry upon graduation.A report issued in mid-August by the Department of Education shows that 57% of students received some sort of federal aid, and 41% of all undergrads had taken loans, up from 35% four years ago. The average debt for a college graduate in Michigan is slightly more than $26,000.Nationally, there’s more than $1 trillion owed in student debt — more than what Americans owe on credit cards — with more than $180 billion of it in some type of default, according to government data.”If everyone else is making a killing off of us, I’m not the least bit surprised the government is angling to rake us all over the coals,” said Nick Townsend, a senior at Ferris State University.The profitsIt’s going to take both Jennifer and Savannah St. Pierre of North Branch taking out loans to get Savannah through her junior year at the University of Michigan-Flint.Savannah will take $5,500 in Stafford loans — the maximum allowed. Jennifer, her mom, will take a $6,000 parent loan.Under the law passed this summer, both will save a little bit from what they would have paid in interest rates. But if they continue to take out loans in subsequent years, they are likely to pay more.The law set rates for all the loans at different levels, but based them all on the 10-year Treasury rate and allowed rates to change each year.For Stafford loans, both the subsidized and unsubsidized, the interest rate is the Treasury rate plus 2.05%, with a cap of 8.25%. Graduate student loan rates are the Treasury rate plus 3.6%, with a cap of 9.5%, and the parent loans are the Treasury rate, plus 4.6%, with a cap of 10.5%.For loans taken out last school year, the rate for subsidized Stafford loans was 3.4%. This year, it’s 3.86%. However, without some sort of congressional action, that rate would have been 6.8%.Because this year’s rate dropped under the new law, politicians were quick to praise themselves.”It is an encouraging step forward in our effort to keep college affordable,” Education Secretary Arne Duncan said in a statement in July.Republican Rep. Tim Walberg, a member of the House Higher Education Committee, also cheered the move.”This is a win for students, families and taxpayers,” he said in a statement.But the CBO analysis shows it’s only a short-term win for students and families.While the CBO projects profits for the government each of the next 10 years, it shows that starting in 2016, the profit level will increase. The CBO’s projections look at how much money the federal government will have to subsidize the program. A negative subsidy exists when there’s more money coming in than going out, CBO officials and financial aid policy experts agree.The CBO projections show an average subsidy rate of just over negative 20% for each of the next 10 years. That means the government will have 20% more coming in than going out. That’s an increase of 2 percentage points over what would have been coming in had Congress not passed this law.The government will particularly increase its profits on parent loans, with an average increase of 9 percentage points each year between 2013 and 2023.How did it happen?As a July 1 deadline to stop the interest rates on subsidized Stafford loans came and went, a number of plans were floated by members of Congress and the Obama administration.They ranged from just freezing rates at the lower rate for a year to a complete overhaul of the system.But in the process of coming to a compromise plan, it became clear that whatever was passed had to be revenue-neutral, several experts said. That meant the plan had to at least match the profit levels projected by the CBO for what would happen if rates had increased on July 1.Making that profit stay shifted a lot of the burden onto parents and graduate students, Thompson said.”Unfortunately, this is a permanent change,” she said.Sen. Carl Levin, D-Michigan, said he voted for the plan because it promised relief to students, at least in the short term.”We stopped the increase in interest rates,” he said Wednesday. “We kept that cap where it was for the next few years, and then it’s gradually going to go up to a certain point. Do I think we ought to make money (on student loans)? The answer is no. That wasn’t the alternative that was presented to us.”Sen. Debbie Stabenow, D-Mich., had pushed a plan to freeze the rates at 3.4% for subsidized Stafford loans and allow more work to be done on loans and the federal government’s role.”At a minimum, the federal government shouldn’t be making a profit,” she said. “I, personally, think it’s appropriate for us (the government) to subsidize the cost. We need to make sure the federal government is not making money off the back of students.”Upset borrowersWhen Erica Murphy graduated from Wayne State University in 2009, she did so with student loan debt. This fall, she and her daughter, Paige, are both adding debt to help pay for Paige’s freshman year at Saginaw Valley State University.”I owe about 40K, and now here I am having to borrow money to pay for my daughter’s education,” said Erica Murphy, a Taylor resident. “There should be a better, more affordable way to finance an education.”That’s the feeling of many who feel trapped into borrowing money by ever increasing college costs.”The price of tuition at big public schools is outrageous, and the price of books keeps climbing into the stratosphere,” said Will Huff, a graduate student at Arkansas Tech University. “I think the USA should find a way to lower the price of education, and by no means should the government profit off of the students.”The debt can be crippling to young graduates, keeping them from renting apartments, buying cars and beginning their professional lives, many said. Having a portion of that debt being tied to federal government profits is frustrating, they said.Valerie King, a senior at Northwestern University, will graduate with more than $20,000 in federal loan debt, she said in an email.”As far as I’m concerned, it’s the government’s job to make sure that money is never a factor in one’s decision to go to college. A plan to profit from student loans suggests that they’re in the business for their own good and not the people’s good.”http://www.usatoday.com/story/news/nation/2013/08/25/student-loan-rates-will-feed-fed-profits/2696241/


Tips for buying a house

The top 10 things you need to know when buying a home.

1. Don’t buy if you can’t stay put.

If you can’t commit to remaining in one place for at least a few years, then owning is probably not for you, at least not yet. With the transaction costs of buying and selling a home, you may end up losing money if you sell any sooner – even in a rising market. When prices are falling, it’s an even worse proposition.

2. Start by shoring up your credit.

Since you most likely will need to get a mortgage to buy a house, you must make sure your credit history is as clean as possible. A few months before you start house hunting, get copies of your credit report. Make sure the facts are correct, and fix any problems you discover.

3. Aim for a home you can really afford.

The rule of thumb is that you can buy housing that runs about two-and-one-half times your annual salary. But you’ll do better to use one of many calculators available online to get a better handle on how your income, debts, and expenses affect what you can afford.

4. If you can’t put down the usual 20 percent, you may still qualify for a loan.

There are a variety of public and private lenders who, if you qualify, offer low-interest mortgages that require a small down payment.

5. Buy in a district with good schools.

In most areas, this advice applies even if you don’t have school-age children. Reason: When it comes time to sell, you’ll learn that strong school districts are a top priority for many home buyers, thus helping to boost property values.

6. Get professional help.

Even though the Internet gives buyers unprecedented access to home listings, most new buyers (and many more experienced ones) are better off using a professional agent. Look for an exclusive buyer agent, if possible, who will have your interests at heart and can help you with strategies during the bidding process.

7. Choose carefully between points and rate.

When picking a mortgage, you usually have the option of paying additional points — a portion of the interest that you pay at closing — in exchange for a lower interest rate. If you stay in the house for a long time — say three to five years or more — it’s usually a better deal to take the points. The lower interest rate will save you more in the long run.

8. Before house hunting, get pre-approved.

Getting pre-approved will you save yourself the grief of looking at houses you can’t afford and put you in a better position to make a serious offer when you do find the right house. Not to be confused with pre-qualification, which is based on a cursory review of your finances, pre-approval from a lender is based on your actual income, debt and credit history.

9. Do your homework before bidding.

Your opening bid should be based on the sales trend of similar homes in the neighborhood. So before making it, consider sales of similar homes in the last three months. If homes have recently sold at 5 percent less than the asking price, you should make a bid that’s about eight to 10 percent lower than what the seller is asking.

10. Hire a home inspector.

Sure, your lender will require a home appraisal anyway. But that’s just the bank’s way of determining whether the house is worth the price you’ve agreed to pay. Separately, you should hire your own home inspector, preferably an engineer with experience in doing home surveys in the area where you are buying. His or her job will be to point out potential problems that could require costly repairs down the road.


Check your credit reports and scores

Find out what information lenders have on your personal debt

While you’re cleaning up your debt, order copies of your credit reports, which are free, and your credit scores, which cost about $15, since the information contained in them will directly affect the interest rates you’re offered on credit cards, mortgages and other loans.

There are three major credit bureaus: Experian, Equifax and TransUnion. Each collects information on your credit history which is culled into a credit report. From that report, a credit score is derived. That score is a quick way for lenders to assess how risky you are as a potential borrower. The higher your score, the less risk you pose to lenders and the more likely it is that you’ll get their best available rates.

The score most commonly used by lenders is the FICO score, developed by Fair Isaac.

When lenders review your credit reports and resultant FICO scores, they take into account not only how much you owe but also how much credit you have available to you. Too much of either, and they may not loan you any more money.

So when you get your reports, check for inaccuracies; the bureaus are required to investigate and correct them once you report them. Look, too, for things that may lower your credit rating, including open lines of credit you never use or accounts you thought had been closed long ago.

The bureaus may have different information about your credit history, which means your credit score can vary somewhat from bureau to bureau. So it’s important to view reports from all three.

You can get any of the bureaus’ credit reports free atwww.annualcreditreport.com and your FICO score fromMyFICO.com. Then check if this is true: If you’ve been turned down for credit, employment or housing in the past 60 days, you may receive a free credit report from all of the three credit bureaus.


Budgeting Tips


1: Determine your financial goals.

Decide what you would like to achieve in the short term and in the long term, and be specific. This can include anything from paying off credit card debt within the next six months to buying a house in the next two years.

2: Create a plan of action.

Now that you know what you are working toward and when you’d like to meet those goals, implement a plan to make it happen. Calculate your monthly income, and keep track of your expenses for a month. Take into account any income after taxes, your bills, monthly memberships, gas, groceries and anything else you spend money on.

3: Cut the fat.

Once you’ve written down everything you spend money on for a month, find out where you can cut corners and spend less. You may love shopping at Whole Foods, but can you really afford those prices every week? Do you have to get the latest Apple product right now? Weigh these wants against your needs and the financial goals you’ve set for yourself. Time to face some hard truths, and cut the fat.

4: Revise your budget.

Now that you’ve hopefully reduced your spending, adjust your budget accordingly. Use this new budget for a month or two and monitor how closely you are sticking to it. This will give you a more realistic idea of what you’re spending and what you are able to redistribute toward meeting your goals.

5: Commit.

You’ve taken the time to create goals, make a budget and adjust your spending, so stick to it! It will be well worth it, and your future self will thank you.

Always on the go and need some help staying on budget? Here are a few free phone apps that can help:

Pageonce – This app gives you an overview of all your bills, bank account balances and credit cards. You can even set reminders to alert you when a bill is due, when money is withdrawn or deposited to your account, or when there is suspicious activity on your account.

ShoeBoxed – Do you hold onto crumpled receipts trying to track your purchases? With this app, you can take a photo of the receipt and ShoeBoxed will automatically enter the date, total, payment type, store and category of the purchase. You can even create and send expense reports right from your phone.

Simple – Prefer to have your banking information all in one place? Simple pulls information from your bank’s checking and savings accounts and adds the tools you need for daily spending and saving. You can view your transactions, send payments, write notes, find an ATM or contact customer service, all from your smartphone.



 Mortgage Modification / HAMP Program A Fraud?


Publicly, the big banks have  sung of their own praise and tell the world of what a wonderful job they are doing to keep people in their homes. Just ask around and see if you can find many people that have actually received a permanent mortgage modification, however. Back in September we wrote about what Bank of America said to one of our clients seeking a mortgage modification, “There is no HAMP, there is no help and there is no hope.” It seems like JPMorgan Chase is following the same footsteps.

For those not familiar with HAMP, the acronym stands for the Home Affordable Modification Program. It was rolled out by the Treasury Department in 2008 as part of the larger federal stimulus package. That law, the Emergency Economic Stabilization Act of 2008, which gave billions to Wall Street and big banks, did set aside something for struggling homeowners unable to keep up on mortgage payments. Congress wanted to “maximize assistance for homeowners” and to “minimize foreclosures.”  $50 billion was set aside to induce lenders to lower interest rates or monthly payments.

On paper, the program seems ideal. In reality, however, the program was and continues to be a disaster. Some homeowners who are down on their luck simply can’t make any payments. For them, a modification just isn’t going to work. For many, however, a small reduction or reprieve may make the difference in allowing a family to remain in their home.

Lenders are supposed to offer modifications to borrowers who qualify. Often those modifications require the homeowner to supply documentation to establish eligibility for the program and then to make a few trial payments to insure that they can make the minimum payments necessary to avoid foreclosure. As we noted above, the intended practice is far different from reality, however.

Recently we obtained a copy of a declaration from a case involving Chase. That declaration was filed in federal court and was made by a former loss mitigation specialist and later, a junior underwriter who worked at J.P. Morgan Chase from 2006 through 2010. According to her sworn statement, she handled some 10,000 mortgage modification requests from struggling homeowners desperately trying to save their homes.

I can editorialize but her words are better than anything I could ever write. This is what she had to say:

“During my employment at Chase I handled well over 10,000 calls from borrowers seeking loan modifications. As far as I know, very few actually received the permanent loan modifications they sought – …

“Employees in the Rancho Bernardo office commonly joked that a document shredder was connected to the fax machine. This joke was common because borrower documents were consistently lost, misplaced or destroyed by Chase. In fact, under Chase policy, for a while documents sent via fax were shredded if not retrieved within 24 hours, and often they were shredded without notice.

“Chase was committed to delaying, obstructing and preventing permanent loan modifications for its borrowers… Employees were instructed to deceive borrowers in discussing loan modification applications… Management at Chase instructed employees to tell borrowers that their loan modifications were still “in process” even when they were actually dead or hopeless… Chase erected an army of procedural barriers and red tape to obstruct and delay loan mods, making a successful permanent loan mod very difficult… The company’s ‘ferris wheel’ system was used to delay, obstruct and reject loan modification applications.”

Getting the picture? This blog post rarely scratches the surface of the evidence uncovered against Chase and some of the other large lenders. As we have said repeatedly, the so-called banks that are “too big to fail” are also “too big to care.”

Federal and state law is unfortunately inconsistent when it comes to suing a bank or mortgage company for an improperly denied loan modification including HAMP modification. Homeowners in Illinois, Indiana and Wisconsin can clearly sue and courts are permitting suits in othe jurisdictions as well.

The key to winning a suit for a wrongful HAMP or modification denial is to act quickly and document everything. Your journal of how many times you sent requested documents and what you were told often makes the difference in being successful.

Our firm represents homeowners with claims against banks and lenders. We are not foreclosure defense lawyers (unless very close to one of our offices) but we do represent homeowners nationwide when they wish to sue their lender. If you believe you have been improperly locked out, denied a modification or have been abused by a lender or loan servicing company, contact us. We may be able to help


HOA and Corruption






“The Whistleblower Protection Act” is a federal law that protects federal whistleblowers who work for the government and report agency misconduct. However, whistleblowers of private quasi-governmental homeowners’ association (HOA) boards are not provided with anything that resembles this type of protection. In fact, in Henderson, Nevada if you report an HOA board member for wrongdoing, you could be arrested...


Regulators responsible for overseeing the state’s homeowners associations lowered the boom on the Autumn Chase board in North Las Vegas. On Oct. 9, the Nevada Real Estate Division ousted the board’s three members, fining two of them $86,200, and banned all from serving on any HOA governing board in the state.

All it took was some 250 violations of state law by the husband-wife tag team that state officials said dominated and possibly victimized the third board member, and a four-year fight by disgruntled homeowners to expose the trio.

It was the first time the Nevada Commission for Common-Interest Communities and Condominium Hotels, which is part of the Real Estate Division, has removed an HOA board.

The commission’s action against Joseph and Barbara Bitsky and Hellen Murphy found they had charged more than $10,000 on the association’s credit card on personal expenses, failed to prepare financial statements or conduct board elections, and retaliated against homeowners who complained to the Real Estate Division.

Last year, Joseph Bitsky pleaded no contest to coercion in North Las Vegas Municipal Court after he blocked the front door of his home to keep other homeowners from leaving a contentious meeting. He was upset the meeting had been recorded.

Autumn Chase has 46 homeowners and operates on a $9,000 annual budget. Although the board’s conduct has been outrageous, the community looks like Lake Wobegon when compared with an ongoing, unrelated federal investigation into a scheme to take over 11 valley HOA boards and steer lucrative legal, construction and association management contracts to the conspirators. Guilty pleas have been entered by 27 people thus far, and prosecutors expect to charge at least a dozen more suspects by year’s end in a massive case they allege involved more than $8 million funneled through secret bank accounts.

Make no mistake: Many homeowners associations in Nevada are run well – or at least as well as any organization trying to represent the best overall interests of people with varied values and disparate interpretations of community restrictions and covenants. Serving on an HOA board, particularly when so many property owners have been hammered by the housing market collapse or unemployment, is often a thankless task.

Equally true, however, is the dismal record of state and local authorities in investigating and enforcing state laws governing homeowners associations and their boards. That this month’s action to remove the Autumn Chase board was described by regulators as “unprecedented” is proof enough. There have been thousands of complaints to authorities about boards and members, yet this is the first board removal?

Remember: It took the feds to step in and move against the multimillion-dollar fraud involving 11 local associations.

In discussing the state commission’s action against the Autumn Chase board, Terry Johnson, director of the Nevada Department of Business and Industry, stated the obvious: “It is critically important that homeowners associations operate with transparency and accountability in carrying out their duties.”

Equally critical is a healthier state and local appetite to investigate, remove, fine and prosecute HOA criminals.


 Bank And Investment Fraud In 2013

On December 21st, I attended an outdoor doomsday party in New Orleans. The promoters anticipated 10,000 revelers for the big event. My guess is that 500 showed up. Evidently, not many people thought the world was ending or if they did, they found better ways of celebrating than drinking beer in New Orleans. As I write this, I am back in New Orleans for New Year’s Eve and USA Today reports that the possibility of falling off the “fiscal cliff” at midnight looms large. While the fiscal cliff is certainly real, the true victims of financial hardship remain the victims of banking and investment fraud.

When the Bernie Madoff story broke a couple years ago, I saw my former boss pictured in the Wall Street Journal. A brilliant lawyer, she still managed to lose most of her life savings to Madoff. We represent a quadriplegic homeowner who lost his home because of a “mistake” made by Bank of America. We represent a woman in her 90′s who faces losing everything because of the greed and fraud by a local banker. While we often see the faces of those arrested and charged with fraud on the evening news, the faces of their thousands of victims are rarely seen nor are their stories told.

We try to tell some of those stories here. Not to convey a sense of hopelessness and despair but to help people avoid a similar fate. Even for the victims, thankfully there is often a remedy if people have the strength to keep up the good fight.

The Madoff victims are likely to never get back 100 cents on the dollar but there is some justice in knowing that Bernie Madoff will die in prison and never be able to defraud another innocent victim. As a former prosecutor and law enforcement officer, I laud the efforts of the Department of Justice and countless state prosecutors who work hard to stem the epidemic of fraud. Although we may be critical that not enough is being done, those criticisms are aimed at the policy makers and not the rank and file special agents and assistant United States attorneys.

Holding criminals accountable by taking them out of society is only half the battle. To return to any semblance of a normal life, victims need to get back their hard earned money. That’s where we step in.

Although our mission in this blog is to educate people before they become victims, we unfortunately know that 2013 is probably going to be a banner year for fraudsters. As the economy softens, more and more criminals will come out to victimize anyone with money. Investment scams often target the elderly and those with diminished capacity. Big banks and mortgage companies frequently target desperate homeowners struggling to stay afloat.

If you lost your hard earned money to a dishonest banker, fraudulent foreclosure or HAMP denial, bogus 419 plan or other abusive tax shelter, dishonest stockbroker or even a dishonest (or inept) lawyer, give us a call. Attorneys Bethany Kroes, Joseph Bird, Anthony Dietz, Al Sargent, Wassim Malas, Daryl Laatsch, Christopher Ertl, Mark Kallenbach, Michelle Kallenbach and our affiliated counsels join me in pledging our renewed commitment to stop fraud and help victims recover.

2013 may well be a banner year in the annals of fraud history but it doesn’t have to be a doomsday. If you lost money to a fraudster, don’t despair. You are not alone.




 Sue For Denial Of HAMP Loan Modification?

“Can I sue for denial of a HAMP loan modification” is a question we frequently hear. Some lenders (Bank of America, Citi, Wells Fargo) seem to run borrowers through the ringer only to ultimately deny them a mortgage modification. That’s a shame since Congress authorized the Home Affordable Modification Program as part of the economic stimulus legislation. Luckily, it is often possible to sue your lender if wrongfully denied a modification. [Ed. Note – we can only provide general guidance and are not able to dispense legal advice by a blog post. The law on suing for modification denial changes weekly and varies from state to state and sometimes even within a state!

HAMP was rolled out by the Treasury Department in 2008 as part of the larger federal stimulus package. That law, the Emergency Economic Stabilization Act of 2008, gave billions to Wall Street and big banks but did set aside something for struggling homeowners unable to keep up on mortgage payments. Congress wanted to “maximize assistance for homeowners” and to “minimize foreclosures.”  $50 billion was set aside to induce lenders to lower interest rates or monthly payments.

On paper, the program seemed ideal. In reality, however, the program was and continues to be a disaster. Some homeowners who are down on their luck simply can’t make any payments. For them, a modification just isn’t going to work. For many, however, a small reduction or reprieve may make the difference in allowing a family to remain in their home.

Lenders are supposed to offer modifications to borrowers who qualify. Often those modifications require the homeowner to supply documentation to establish eligibility for the program and then to make a few trial payments to insure that they can make the minimum payments necessary to avoid foreclosure. The intended practice is far different from reality, however.

We  are contacted daily by homeowners who try to make their trial payments only to have them refused, who make all the payments and are subsequently denied, who keep sending in their documents over and over only to be told they were not received and in a few instances, given telephone numbers to call that are either disconnected or never answered!  We could write a book on the problems encountered by homeowners trying to get a modification.

It’s incredibly demoralizing considering the bank first holds out a carrot and then pulls it away for no reason.

People who are wrongfully denied a HAMP modification may be able to sue their lender, however. That’s a dirty little secret the banks don’t want you to know.

The only federal appeals court to consider the issue is the 7th Circuit which covers Wisconsin, Illinois and Indiana (Wigod v. Wells Fargo). The 7th Circuit Court of Appeals said that although Congress didn’t include a provision allowing lawsuits for denial of HAMP modifications, their intent was certainly clear in wanting to minimize foreclosures and promote maximum assistance. A subsequent Treasury directive also acknowledged state law. The court also said that state claims against lenders for breach of contract and deceptive business practices were not pre-empted by the federal law.

Not all courts agree with the 7th Circuit including courts in California where the mortgage crisis is particularly acute. Prior to the appeals court decision in Wigod, California courts had already decided there was no claim for denial of a modification but there is some evidence that suggests California courts are rethinking that pro-lender position. Just a few months ago a federal bankruptcy court judge refused to throw out a claim against CitiMortgage based on a HAMP denial.

In order to bring a case for denial of HAMP modification its important that you keep an accurate phone log and copies of all your correspondence. That includes any messages or letters you receive from the lender. Often these cases turn on who is the better record keeper and you shouldn’t assume that the bank will provide everything. After all, many of these claims are those brought by homeowners alleging that they sent requested documents to the banks three and four times only to be told they were denied for not sending in the requested documents (our record thus far is a whopping 42 times!)

Don’t be afraid to record conversations either. You should check local laws first, however. The Reporters Committee For Freedom Of The Press has a pretty comprehensive website for that. We don’t know how often they update that but they do have a state by state list.

In our opinion, many of the larger banks and servicers only pay lip service to the HAMP law. Unless you complain (and sometimes sue), you may find yourself with no modification and still facing foreclosure.

We are not foreclosure defense lawyers If you believe you have been improperly locked out, denied a modification or have been abused by a lender or loan servicing company, contact us. We may be able to help.




They lost the Promissory Note for my house?

Q:  The bank says they lost the Promissory Note for my house.  Does that mean I get to keep my house for free?

Says Attorney Jason Ricardo:  There is a lot of misinformation about the “lost note” defense.  While it may be possible to defeat a foreclosure on a “lost note” defense, homeowners need to know that, even if a bank has lost or destroyed their Promissory Note, there is a law in the State of Florida that allows the bank to prove the note existed and to reestablish it for the purposes of enforcement.  However, when a bank includes a “lost note” claim in their foreclosure, it is important to aggressively and knowledgeably defend the foreclosure.  Additionally, adding a “lost note” is a red flag showing other possible problems and defenses.



Sandy is responsible for an estimated $10 billion in Damages

The insurance industry could be responsible for paying for $5 billion to $10 billion in property and casualty claims from Hurricane Sandy, but it has the resources to make the payouts, industry experts said Monday.

Eqecat, a company that tracks natural disasters and estimates their cost, said it expected the storm’s total economic damages to range from $10 billion to $20 billion, which includes damage to homes and cars, and business lost because of the storm. The company said the insurance industry would be responsible for covering $5 billion to $10 billion of that, a smaller amount in part because insurers generally don’t cover the flooding of homes and businesses. A federal government insurance program would most likely pick up much of that uncovered cost.   Insurance payouts toward the lower end of the Eqecat estimate would be on par with the $6.4 billion insurers covered in Hurricane Rita in 2005. According to the Insurance Information Institute, the most expensive hurricanes, in inflation-adjusted dollars, were Katrina in 2005, with $47 billion in insured losses; Andrew in 1992, with $23 billion; Ike in 2008, with $13 billion, and Wilma in 2005, at $12 billion, all of it in Florida.   Robert Hartwig, president of the Insurance Information Institute, said the property and casualty industry had the resources to absorb losses estimated for this storm. Until now, the industry had been having a year of minimal losses from natural disasters.   Eqecat noted that about 20 percent of the United States’ population lived in the areas exposed to Hurricane Sandy’s impact.   AIR Worldwide, a company that models hurricanes and estimates their damage, said the value of insured properties in New York State’s coastal areas was $2.7 trillion. The only state with hurricane exposure that has a higher total property value is Florida, with $2.8 trillion. Texas is a distant third.   Homeowners’ insurers with the biggest market share in New York State are State Farm, with 15.5 percent of premiums written; Allstate, with 15.2 percent; and Travelers with 10.9 percent. The figures, provided by SNL Financial, do not take into account reinsurance arrangements, which are typical in the property and casualty business and help spread risks across a larger group.   The largest auto insurers in New York State are Berkshire Hathaway, with 26 percent of the market; Allstate, with 18.1 percent; and State Farm, with 12.5 percent.   Leading commercial insurers in New York include the American International Group and State Farm, which has a large workers’ compensation program.   AIR Worldwide’s principal scientist, Tim Doggett, warned of possible record-setting storm surges in east-facing bays, such as Long Island Sound, Raritan Bay and the New York City Harbor. Manhattan’s sea walls stand five feet above the average sea level, and storm surges up to 11 feet are being predicted.   Standard homeowners’ insurance policies do not cover flood damage, nor do commercial policies, although auto insurance often includes coverage for flooding. This means much of Hurricane Sandy’s cost is likely to be borne by the National Flood Insurance Program, in which the federal government covers flood claims in communities that have adopted local flood plain management ordinances.   The program paid out $1.3 billion to cover claims in all states affected by Hurricane Irene in 2011. The industry racked up $4.3 billion in losses in that storm.   AIR Worldwide said the biggest unknown was what would happen in the days immediately after landfall; although the winds would slow, the storm was expected to linger in the region and could continue to wreak destruction in Washington, Pennsylvania and New York until as late as Wednesday.



Sandy Challenges Real Estate Recovery

The U.S. real estate recovery that’s gained strength this year faces a setback from flooding and property damage inflicted by Hurricane Sandy, the biggest tropical gale to hit the Atlantic seaboard.

The storm battered homes in Eastern coastal states that account for about one out of every five U.S. real estate sales and threatened inland areas with flooding and blackouts. Lenders put transactions on hold and companies like Coastline Realty in Cape May, New Jersey, pulled in their for-sale signs to prevent the wind from turning them into projectiles.

“We’ll definitely see lower numbers in new sales and new applications,” said David Stevens, president of the Mortgage Bankers Association. “We do expect to see lenders put a freeze on properties across the northeast on the shoreline until they can be inspected and assessed for damages.”

Sandy, 1,000 miles wide, prompted warnings of life- threatening storm surges from Virginia to Massachusetts, emptied the streets of the nation’s largest cities, paralyzed mass- transit systems and lashed the area with gales, rain and even snow. U.S. airlines grounded 9,500 flights, U.S. stock trading is closed through today in the first back-to-back shutdowns for weather since 1888. Losses may total as much as $20 billion, with $5 billion to $10 billion of that insured, according to Eqecat Inc., an Oakland, California-based provider of catastrophic risk models.

Property Damage

Almost $88 billion of homes in seven states are at risk of damage, according to a report by CoreLogic Inc., a mortgage software and data firm in Irvine, California. New York has $35.1 billion of property in harm’s way, New Jersey has $22.6 billion, Virginia has $11.3 billion, and Massachusetts has $7.8 billion. Maryland, Delaware and Pennsylvania have a combined $11 billion of property at risk, CoreLogic said.

The storm may also adversely impact commercial properties and securities linked to their debt. New York accounts for 13.2 percent of property loans contained in commercial-mortgage bonds, according to Standard & Poor’s. Loans in Virginia make up 4 percent of deals, while mortgages in Pennsylvania account for 3.4 percent, S&P said yesterday in a note to clients. Debt on New Jersey properties accounts for 3.1 percent of outstanding bonds.

“Given the magnitude of the storm there will be some impact on performance but more so on smaller properties, to the extent there is structural damage to the property and they require significant capital expenditures,” said Deutsche Bank AG debt analyst Harris Trifon. It won’t lead to any significant increase in delinquencies, he said, because most properties should have adequate insurance.

Sales Delayed

Still, the storm, which forced cancellations of U.S. stock trading and fixed-income markets, means Wall Street also had to put on hold about $3 billion of commercial mortgage bond sales that included loans to shopping malls, hotels and office buildings.

The U.S. housing market has been recovering this year. Median sales prices rose to $188,800, up 11 percent over a year earlier, according to the National Association of Realtors. Home sales reached an annualized pace of 4.75 million in September, up 11 percent from a year ago. Pending home sales edged up in September for the 17th consecutive month on a year-over-year basis.

The storm’s central barometric pressure is lower than that of the 1938 hurricane that devastated homes in New York and New England. Flooding has been reported along the coast from Martha’s Vineyard in Massachusetts through New Jersey. The storm submerged Plymouth Rock, the landmark in Massachusetts traditionally represented as the place where Pilgrims first stepped onshore in the New World in 1620.

‘Perfect Storm’

“I have never seen a storm this large in regards to wind flow,” said Rob Carolan, a meteorologist at Hometown Forecast Services Inc. in Nashua, New Hampshire. “So many bad things had to come together all at once. It is going to make the ‘Perfect Storm’ look small. It’s remarkable what an impact this is going to have.”

The “Perfect Storm” struck the U.S. East Coast in October 1991. It later became the subject of a book by Sebastian Junger and a movie starring George Clooney.

Fannie Mae, Freddie Mac, Bank of America Corp. and Wells Fargo & Co. told property managers to make sure their foreclosed homes were secured, David Benham, co-owner of Benham Real Estate Group, a property management company based in Charlotte, North Carolina, said in a telephone interview.

Securing Properties

“They told us to do what we can in terms of the building but keep ourselves safe,” said Benham, whose company manages 2,000 bank-owned homes nationwide. Their assignments start with boarding up windows and doors, he said. They expect to complete field reports, including photos, within five days showing damage from the weather, he said.

Over the long run, the storm could worsen blight on properties in the foreclosure pipeline where owners don’t have the resources — or the intention — to maintain the property and the loan servicers don’t have full legal responsibility for maintaining the property, Chris Whalen, senior managing director at Tangent Capital Partners LLC, said during a telephone interview from New York.

There’s a “floating inventory” of abandoned or delinquent properties not available for sale that has been growing in states like New York and New Jersey, where the foreclosure process takes longest, Whalen said.

Vacant Properties

About 20,000 New Jersey properties facing foreclosure or already repossessed by banks are in Sandy’s path, in the counties of Burlington, Camden, Gloucester, Salem, Ocean, Atlantic, Cape May, Cumberland, Daren Blomquist, RealtyTrac vice president, said in a telephone interview.

More than 50,000 New York foreclosures are threatened in New York City’s five boroughs and the counties of Ulster, Dutchess, Westchester, Suffolk, Nassau, Rockland, Putnam, Orange, Greene, Columbia, he said.

In Connecticut 3,055 homes in foreclosure will be affected in New London, New Haven, Middlesex and Fairfield counties, Blomquist said.

The storm closed many courthouses where lenders pursue foreclosures, another wrench in a process that takes an average of 1,072 days to complete in New York, the longest process among U.S. states. Foreclosures take an average of 931 days in New Jersey, second-longest, and 661 days in Connecticut, the sixth longest, according to RealtyTrac.

At the current pace of foreclosures, the pipeline of homes with seriously-delinquent mortgages would take 495 months — more than 41 years — to work through in New York and 425 months in New Jersey, the longest of any states, according to Lender Processing Services Inc.

Foreclosure Crisis

“The magnitude of the damage is not yet known, but none of this can be good for the prospect of getting the foreclosure crisis behind us,” said David Dunn, an attorney with Hogan Lovells in New York.

The Hamptons, on the eastern tip of New York’s Long Island, had lost electricity yesterday afternoon, according to Judi Desiderio, president of Town and Country Real Estate in East Hampton. Owners and buyers who plan to live there during hurricane season should factor in the approximately $50,000 cost of having a generator as part of the price of owning property, she said.

Another necessity, she said, is “a bunch of friends who live nearby so you can have a hurricane party.”

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